Are you a first time home buyer? From house hunting to finalising the house that you want, it can be an overwhelming experience. You’ll have to make a lot of important choices during the process. Here are some important tips to help you with some points for better decision making and any surprises you might encounter on the way!
Make sure you’re ready to buy a home
Buying a home for the first time is a calculated decision. Make sure you’re completely ready to buy a home.
Assess your credit
The ideal time period to know about your credit score would be 2-3 months before you apply for a mortgage. Your credit score has a large impact on the interest rate of the mortgage that lenders will offer. The higher the credit score, the lower your mortgage rates will be.
Quick tips
- Pay your bills on time so you avoid late payments pulling down your credit scores.
- Try not to open any new credit accounts.
- Pay off your card balances before house hunting, as it may take 60 to 90 days for payments to reflect on your credit report.
Save your money for a larger down payment
At the closing of your dream home, try to have a larger amount of down payment ready. This lowers your mortgage payment, gives you a better interest rate and increases your buying power (you can buy a more expensive home).
Work on your budget for buying a home
Buy a house that you can afford. The 28/36 rule of thumb suggests your mortgage should be no more than 28% of your gross monthly income, and your total debt payments should not exceed 36%. While not rigid, it’s a helpful starting point for budgeting.
Also, researching home values can give you insight into your local market.
You can even check out real estate companies and their listings to understand home values. This will give you budget estimates for different types of homes.
Find a good real estate company or agent
A real estate agent assists you through the process of buying a home. While the exact tasks vary by state, real estate agents are generally responsible for helping you find listings, providing advice on homes you’re looking at, explaining the purchasing process, submitting offers, and helping to finalize the purchase of your new property.
Most home sales involve two real estate agents—one for the buyer and one for the seller. The two agents split a percentage of the house’s sale price, which usually ranges between 4-6%.
There’s a good chance you’ll spend quite a bit of time with your real estate agent, so choose someone who understands your needs and is happy to explain the process and answer questions. If the real estate agent constantly misses meetings, forgets to return calls, or suggests homes that do not fit your needs, they may not be the right agent for you.
Know your financial options
Securing an affordable mortgage is key to the home-buying process. Your monthly mortgage payments depend on several factors, so using an online mortgage calculator can give you a general idea by experimenting with different inputs. Here are some loan types to know about:
- Conventional loans
- FHA (Federal Housing Administration) Loans
- Jumbo loans (non-conforming)
- VA (Department of Veteran Affairs) Loans
- USDA (U.S. Department of Agriculture) Loans
Pre-approval is important for buying a home
A pre-approval letter indicates the amount of money a lender may be willing to loan you. A mortgage pre-approval means you’ll have a better understanding of your budget and that you can be more confident that you’ll have the financing in time to close on your home.
If you’ve found a home and you want to close in, a pre-approval letter is necessary. Most sellers will not consider the offer without the letter.
Keep in mind – Closing costs & others
While the Closing cost is the expense paid to the lender for arranging some loan services, there are other costs as well that you need to consider (during budget prep).
- Homeowners insurance
- Property tax
- Escrow fees
- Home appraisal fees
- Title insurance expenses
In conclusion, buying your first home can be an exciting yet complex journey, but being well-prepared can make all the difference. By understanding your finances, working with the right professionals, and staying informed, you’ll be on your way to making confident and smart decisions throughout the process.
